Valeant Stock Surge Draws Fresh Batch of Options Bulls

VRX stock hit a new annual high earlier

Dec 8, 2017 at 1:32 PM
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Shares of Valeant Pharmaceuticals International, Inc. (NYSE:VRX) are soaring today, with Trade-Alert pointing to optimism ahead of the Food and Drug Administration's (FDA) PDUFA action date for Luminesse, Bausch + Lomb's over-the-counter eye redness treatment. Whatever the reason, VRX stock is up 10% at $19.39 -- fresh off an annual high of $19.44 -- and option volume is popping.

At last check, 123,714 calls and 49,696 puts had traded on VRX, three times what's usually seen at this point in the day and total options volume pacing in the 98th annual percentile. Eleventh-hour options bulls appear to be purchasing new positions at the weekly 12/8 18.50-, 19-, and 19.50-strike calls, betting on more upside through expiration at tonight's close.

Slightly longer-term traders have set their sights on the December 19 and 20 calls, with both likely seeing buy-to-open activity. If this is the case, speculators expect VRX to maintain its momentum -- and close north of the respective strikes at next Friday's close, when the front-month options expire.

Widening the scope reveals call buying has been unusually popular relative to put buying in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 4.02 ranks higher than 91% of all comparable readings taken in the past year.

Those targeting short-term strikes are able to get a relatively good deal, too, per VRX's Schaeffer's Volatility Index (SVI) of 45%, which ranks in the 7th annual percentile. While this indicates low volatility expectations are being priced into near-term options, the security's Schaeffer's Volatility Scorecard (SVS) of 98 suggests Valeant Pharmaceuticals has tended to make outsized moves over the past year, relative to what the options market has priced in.

Since skimming the $11 level in early November, the shares have jumped more than 75%. A round of bullish brokerage notes could certainly help keep the wind at Valeant's back, too. While nine of the 13 analysts covering the shares maintains a "hold" or "strong sell" recommendation, the average 12-month VRX price target of $16.06 stands at a discount to current trading levels.


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